 There are two types of long term care policies: tax qualified and non-tax qualified. Most Long Term Care Insurance policies are tax qualified. This means that they may be eligible for tax deductions. Non-tax qualified policies are currently not eligible for any tax deductions and they do not have to meet any of the standards that the Government requires. Benefits received from a tax qualified plan are income tax free.
All tax qualified policies are required to use the same criteria to qualify when benefits should be paid under a policy. The benefit triggers for a tax qualified policy are the following:
• Activity of Daily Living Problems: The insured is expected to be unable to perform (without "hands-on or stand-by" assistance) at least 2 or more activities of daily living (ADLs). The activities of daily living are: bathing, eating, dressing, toileting, transferring, and continence. This includes the expected need that care will be needed for at least 90 days.
Or
• Cognitive Impairment: The insured has a severe cognitive impairment where it is determined that they are a threat to themselves or others.
The premiums paid for tax qualified Long Term Care Insurance policies are eligible for both Federal and State tax deductions. While it is always best to consult with your accountant for the exact treatment of your premiums, here is a short summary of the tax law that you may find helpful and eye-opening. Information for Individuals
Premium payments purchased by an individual are now included as a personal medical expense if you itemize your taxes. Medical expenses in excess of 7 1/2% of your adjusted gross income are tax deductible. Based upon your age, a portion of your premium payment may help you reach the 7 1/2%. The amounts increase each year based on the Medical Consumer Price Index. Consult the annual tax guide or your accountant for the current yearly amount. Information for the self-employed
Long-term care insurance premiums up to the limits for individuals are also treated like health insurance for the self-employed tax deduction. In year 2003 and beyond self-employed individuals can write off 100% of the individual limit. Self-employed means sole proprietorships, partnerships and other types of corporations (Limited Liability Corporation (LLC), S-Corporation). Information for C-Corporations
Premium payments are fully deductible as a reasonable and necessary business expense; similar to traditional health insurance premiums. This can apply to the owners, their spouses and dependents, and all employees.
Employer paid Long Term Care Insurance is excluded from the employee's gross income and the benefits are received tax free. Information for Partnerships, S-Corporations, and Limited Liability Corporations (LLC)
Premium payments purchased for a partner or owners are treated like a self-employed person.
Premium payments for non-partners or non-owners are fully deductible as a reasonable and necessary business expense - similar to traditional health insurance premiums.
Employer-paid long-term care insurance is excluded from the employee’s gross income and the benefits received are tax-free.
State tax credits for premiums
Recently, many states have begun providing tax credits or deductions from state taxes for Long Term Care Insurance Premiums of tax qualified policies. Please note that these are accurate as of April 2004, but new legislation may have been passed in the meantime.
| State |
Statute |
Description |
Effective Date |
| Indiana |
6-3-1-3.5 |
Income tax deduction for Long Term Care Insurance Premiums paid for the benefit of an individual or spouse. |
1/1/2000 |
| Kentucky |
KRS 141-010 |
Excludes from income tax any amounts paid for Long Term Care Insurance. |
Taxable years beginning 12/31/1997 |
At AM Warner Insurance, we know how complicated this tax information seems!
 Allison Warner, President of AM Warner Insurance understands all these issues and requirements. She has the unique talent of taking the complicated government and state requirements and revealing the programs in easy to understand language.
Contact Allison today and of the process in your home or office. She can help you to understand the possible tax advantages and guidelines as well as offer solutions tailored to your personal needs. Would you like to subscribe to our periodic e-newsletter to stay on top of tax changes and happenings in the long-term care industry? Click to subscribe, it is easy and you can unsubscribe at any time. We will keep you informed, educated and entertained.
Nationwide Referrals
AM Warner Insurance is licensed to provide insurance products in Kentucky and Indiana. If you are outside this area, a referral to an agent in your area is available; all you need to do is , and we'll have someone contact you right away. We provide referrals nationwide!
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